Wednesday, January 16, 2008
Thursday, January 10, 2008
Buying a Home in a Down Market
Should You Wait to Buy in a Down Market of Falling Home Prices?
I know the Real Estate Market looks bleak right now. Sellers are thinking: “I will never be able to sell my home” and buyers are thinking: “I will never be able to get a loan in this market”. In this case, it could be perception is your reality. Everybody wants to know how to best time the market when buying a home. It's just natural - especially if you're thinking about buying in a down market where home prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
You're probably thinking: "Of course, he would say that. He's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:
· If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
· If you can arrange for alternate housing, a smart strategy is selling now, waiting a few months, then buying your new home.
· If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must price it right and reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
1. So you "lost" $30,000 on the sale of your home
2. But you "made" $50,000 on the purchase of your new home
3. Doesn't that put you $20,000 ahead?
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
· $425,000 sales price, at 8.25% interest, your payment is $2,554.
· $450,000 sales price, at 7.75% interest, your payment is $2,579.
· $475,000 sales price, at 7.25% interest, your payment is $2,592.
· $500,000 sales price, at 6.75% interest, your payment is $2,594.
· $525,000 sales price, at 6.25% interest, your payment is $2,586.
The payments are almost identical. However, the home you can afford to buy at 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Sellers
Despite the constant barrage of negative Real Estate news, keep your head up. Look at it in a more positive light. The thought that homes aren’t selling is just not true. You need to understand that you have to price it right. You CAN NOT say “let’s put it on the market for XYZ and if we don’t get a lot of interest, we can lower the price”. That is the kiss of death.
Like most Realtors, I want to list your home! That’s what I’m here for and that’s how I get paid. BUT, I have had to turn down a listing or two because the sellers had unreal expectations. Make sure you find a Realtor who will tell it to you straight, lumps and all. Anyone can be a “yes” man and that is robbing you of precious time and money!
Buyers
YES, you can get financed. Just because lenders have tightened their belts on loans doesn’t mean you can’t get one! Like I mentioned before, mortgage applications are up and the rates have been slashed. Now is the time to buy a home! Sellers are competing for your business. You no longer have to settle.
Regardless of all the negative information floating around, there is always a silver lining. In this case, sellers can sell and buyers can buy. A good strategy is to weigh all the pros and cons of real estate ownership before making the decision to buy or sell. Don't panic over newspaper headlines, make an informed decision, run your own numbers – then do what feels right to you.
I know the Real Estate Market looks bleak right now. Sellers are thinking: “I will never be able to sell my home” and buyers are thinking: “I will never be able to get a loan in this market”. In this case, it could be perception is your reality. Everybody wants to know how to best time the market when buying a home. It's just natural - especially if you're thinking about buying in a down market where home prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
You're probably thinking: "Of course, he would say that. He's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:
· If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
· If you can arrange for alternate housing, a smart strategy is selling now, waiting a few months, then buying your new home.
· If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must price it right and reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
1. So you "lost" $30,000 on the sale of your home
2. But you "made" $50,000 on the purchase of your new home
3. Doesn't that put you $20,000 ahead?
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
· $425,000 sales price, at 8.25% interest, your payment is $2,554.
· $450,000 sales price, at 7.75% interest, your payment is $2,579.
· $475,000 sales price, at 7.25% interest, your payment is $2,592.
· $500,000 sales price, at 6.75% interest, your payment is $2,594.
· $525,000 sales price, at 6.25% interest, your payment is $2,586.
The payments are almost identical. However, the home you can afford to buy at 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Sellers
Despite the constant barrage of negative Real Estate news, keep your head up. Look at it in a more positive light. The thought that homes aren’t selling is just not true. You need to understand that you have to price it right. You CAN NOT say “let’s put it on the market for XYZ and if we don’t get a lot of interest, we can lower the price”. That is the kiss of death.
Like most Realtors, I want to list your home! That’s what I’m here for and that’s how I get paid. BUT, I have had to turn down a listing or two because the sellers had unreal expectations. Make sure you find a Realtor who will tell it to you straight, lumps and all. Anyone can be a “yes” man and that is robbing you of precious time and money!
Buyers
YES, you can get financed. Just because lenders have tightened their belts on loans doesn’t mean you can’t get one! Like I mentioned before, mortgage applications are up and the rates have been slashed. Now is the time to buy a home! Sellers are competing for your business. You no longer have to settle.
Regardless of all the negative information floating around, there is always a silver lining. In this case, sellers can sell and buyers can buy. A good strategy is to weigh all the pros and cons of real estate ownership before making the decision to buy or sell. Don't panic over newspaper headlines, make an informed decision, run your own numbers – then do what feels right to you.
Buying a Home in a Down Market
Should You Wait to Buy in a Down Market of Falling Home Prices?
I know the Real Estate Market looks bleak right now. Sellers are thinking: “I will never be able to sell my home” and buyers are thinking: “I will never be able to get a loan in this market”. In this case, it could be perception is your reality. Everybody wants to know how to best time the market when buying a home. It's just natural - especially if you're thinking about buying in a down market where home prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
You're probably thinking: "Of course, he would say that. He's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:
· If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
· If you can arrange for alternate housing, a smart strategy is selling now, waiting a few months, then buying your new home.
· If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must price it right and reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
1. So you "lost" $30,000 on the sale of your home
2. But you "made" $50,000 on the purchase of your new home
3. Doesn't that put you $20,000 ahead?
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
· $425,000 sales price, at 8.25% interest, your payment is $2,554.
· $450,000 sales price, at 7.75% interest, your payment is $2,579.
· $475,000 sales price, at 7.25% interest, your payment is $2,592.
· $500,000 sales price, at 6.75% interest, your payment is $2,594.
· $525,000 sales price, at 6.25% interest, your payment is $2,586.
The payments are almost identical. However, the home you can afford to buy at 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Sellers
Despite the constant barrage of negative Real Estate news, keep your head up. Look at it in a more positive light. The thought that homes aren’t selling is just not true. You need to understand that you have to price it right. You CAN NOT say “let’s put it on the market for XYZ and if we don’t get a lot of interest, we can lower the price”. That is the kiss of death.
Like most Realtors, I want to list your home! That’s what I’m here for and that’s how I get paid. BUT, I have had to turn down a listing or two because the sellers had unreal expectations. Make sure you find a Realtor who will tell it to you straight, lumps and all. Anyone can be a “yes” man and that is robbing you of precious time and money!
Buyers
YES, you can get financed. Just because lenders have tightened their belts on loans doesn’t mean you can’t get one! Like I mentioned before, mortgage applications are up and the rates have been slashed. Now is the time to buy a home! Sellers are competing for your business. You no longer have to settle.
Regardless of all the negative information floating around, there is always a silver lining. In this case, sellers can sell and buyers can buy. A good strategy is to weigh all the pros and cons of real estate ownership before making the decision to buy or sell. Don't panic over newspaper headlines, make an informed decision, run your own numbers – then do what feels right to you.
I know the Real Estate Market looks bleak right now. Sellers are thinking: “I will never be able to sell my home” and buyers are thinking: “I will never be able to get a loan in this market”. In this case, it could be perception is your reality. Everybody wants to know how to best time the market when buying a home. It's just natural - especially if you're thinking about buying in a down market where home prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
You're probably thinking: "Of course, he would say that. He's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:
· If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
· If you can arrange for alternate housing, a smart strategy is selling now, waiting a few months, then buying your new home.
· If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must price it right and reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
1. So you "lost" $30,000 on the sale of your home
2. But you "made" $50,000 on the purchase of your new home
3. Doesn't that put you $20,000 ahead?
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
· $425,000 sales price, at 8.25% interest, your payment is $2,554.
· $450,000 sales price, at 7.75% interest, your payment is $2,579.
· $475,000 sales price, at 7.25% interest, your payment is $2,592.
· $500,000 sales price, at 6.75% interest, your payment is $2,594.
· $525,000 sales price, at 6.25% interest, your payment is $2,586.
The payments are almost identical. However, the home you can afford to buy at 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Sellers
Despite the constant barrage of negative Real Estate news, keep your head up. Look at it in a more positive light. The thought that homes aren’t selling is just not true. You need to understand that you have to price it right. You CAN NOT say “let’s put it on the market for XYZ and if we don’t get a lot of interest, we can lower the price”. That is the kiss of death.
Like most Realtors, I want to list your home! That’s what I’m here for and that’s how I get paid. BUT, I have had to turn down a listing or two because the sellers had unreal expectations. Make sure you find a Realtor who will tell it to you straight, lumps and all. Anyone can be a “yes” man and that is robbing you of precious time and money!
Buyers
YES, you can get financed. Just because lenders have tightened their belts on loans doesn’t mean you can’t get one! Like I mentioned before, mortgage applications are up and the rates have been slashed. Now is the time to buy a home! Sellers are competing for your business. You no longer have to settle.
Regardless of all the negative information floating around, there is always a silver lining. In this case, sellers can sell and buyers can buy. A good strategy is to weigh all the pros and cons of real estate ownership before making the decision to buy or sell. Don't panic over newspaper headlines, make an informed decision, run your own numbers – then do what feels right to you.
Thursday, December 27, 2007
What To Do If You Can't Pay Your Mortgage
Almost 280,000 Americans lost their homes through foreclosure last year. But that's not the surprising part. This is: Half of them never even talked to their
lenders.
While the number of homeowners with past-due loans is still low by historical standards at 4.4%, it's expected to rise this year and next because almost 5 million American families will see their adjustable-rate mortgages reset to higher interest rates. Families that are already turning their pockets inside out to pay more than $3 a gallon for gas and higher health care costs may have to make painful choices in order to keep their homes.
Now is the time to dig out your mortgage documents and figure out when, by how much, and how often your payments can rise. If you see trouble ahead, now is the time to consider refinancing, or reaching out to a financial counselor who can help you evaluate your options. Most important, call your lender, right now, if you're about to miss a payment.
Your situation, and that of thousands of other folks like you, is serious. You are, indeed, in dire straits. But all hope is not lost, at least not yet.
You should contact your lenders right away. If you are like most folks, you aren't answering the lenders' mail or returning their phone calls. Most think they don't need to speak with their lenders about their situations, or think they can take care of their problems, if they recognize them as such, without involving the lender.
But a large percentage also believe their lenders can't or won't be any help, or are simply too embarrassed or scared to bring them up. But all these people are wrong -- on all counts.
If you are an irresponsible individual who can but won't make your house payments in a timely manner, lenders have nothing to offer but a ride to the courthouse steps. But if you have been a good paying customer, have a good reason why you fell behind, and look like you'll be able to get back on your feet, lenders can be plenty of help. The key word is forbearance.
Here's the thing: Lenders don't want your house, they want you. According to a report I read recently, the costs of foreclosure are enormous. On average, the total cost, including lost interest during the delinquency, foreclosure costs and disposition of the property, ran nearly $59,000, and the situation took about 18 months to resolve. Worse, these figures were five years old. It is probably more expensive now and takes even longer.
At the same time, keeping people in their homes has been found to be far more productive. Indeed, roughly 90% of the loans that are reworked by lenders are likely to "cure" within 18 months. And those borrowers who seek help from their lenders earlier in the process are far more likely to hang on to their places after
riding out their financial turbulence than those who seek help later.
What's more, research shows that the factors originally used by underwriters in trying to predict the likelihood would-be borrowers will default -- credit, collateral and capital -- are not nearly as useful when deciding whether to "work" with customers who are already on the books but are having a tough time meeting their obligations.
Lenders have several workout options up their sleeves:
· Partial reinstatement. Under this plan, the borrower would agree to begin making regular payments and make up what is owed in, say, 12 monthly installments over the next year.
· Short-term forbearance. Here, the lender will suspend your payments for, say, three months or reduce your payment for six months, and then you'd make up the difference in some kind of repayment plan as described above.
· Long-term forbearance. Payments might be suspended for anywhere from four to 12 months, with a corresponding repay plan to follow.
· Loan modification. This would be a permanent change in one or more of your loan's original terms. The rate might be cut, the payment period extended or both so that the payment once again becomes affordable.
So my advice is to get on the horn right now with your lender. Make sure you talk to the workout department, though, not the collections folks. Though many lenders are training their repo staff to spot people who need a break and hand them off to the right people, most are bill collectors, short and simple. If the person you speak with has no idea what you are talking about, ask to be transferred to the chairman's or the president's office. You can bet they'll know whom to transfer you to.
You don't need anybody to speak for you, either. So stay away from the growing group of charlatans who are preying on financially distressed homeowners by offering -- for a fee, of course -- to act as a go-between between you and your lender. They don't have any more of an inside track than you do.
If you honestly feel you need to have someone holding your hand, contact a local credit or homeownership counseling agency. These nonprofits don't charge a thing. In fact, in some cases, lenders are paying them to go out into their communities to persuade troubled borrowers to contact their lenders.
The Department of Housing and Urban Development has a list of government-sanctioned counselors on its Web site, www.hud.gov. Also try the National Foundation of Credit Counselors, www.nfcc.org, or the Homeownership Preservation Foundation, www.995hope.org (888-995-HOPE).
Even if you and your lender can't see any way to save your home, there are still options available that are less painful than foreclosure -- for both parties. You can list your home with a Realtor. There are plenty of Realtors that are skilled in a short sale, or a quick sale. If selling is too burdensome, you can simply hand over the keys to the lender by voluntarily transferring the title back to it in one of several different ways.
In a deed-in-lieu of foreclosure situation, you would forego continued ownership in exchange for cancellation of the remaining debt. In a short sale, also known as a short payoff or pre-foreclosure sale, the lender would allow you to sell the place at less than what is owed, and you and the lender would agree to an unsecured repayment plan for the difference. Anything is better than doing nothing and ruining your credit. Unless you have a lot of money, credit is the only thing that enables you to chase the American Dream. I learned that a long time ago from my father.
Rob AlleyREALTOR® - Roy Wheeler Realty Co.President - Virginia Tech Alumni Association - Charlottesville ChapterBoy Scouts of America - District Advancement Chairman - Monticello District434-220-7630 (office)http://www.robsellscharlottesville.com/
lenders.
While the number of homeowners with past-due loans is still low by historical standards at 4.4%, it's expected to rise this year and next because almost 5 million American families will see their adjustable-rate mortgages reset to higher interest rates. Families that are already turning their pockets inside out to pay more than $3 a gallon for gas and higher health care costs may have to make painful choices in order to keep their homes.
Now is the time to dig out your mortgage documents and figure out when, by how much, and how often your payments can rise. If you see trouble ahead, now is the time to consider refinancing, or reaching out to a financial counselor who can help you evaluate your options. Most important, call your lender, right now, if you're about to miss a payment.
Your situation, and that of thousands of other folks like you, is serious. You are, indeed, in dire straits. But all hope is not lost, at least not yet.
You should contact your lenders right away. If you are like most folks, you aren't answering the lenders' mail or returning their phone calls. Most think they don't need to speak with their lenders about their situations, or think they can take care of their problems, if they recognize them as such, without involving the lender.
But a large percentage also believe their lenders can't or won't be any help, or are simply too embarrassed or scared to bring them up. But all these people are wrong -- on all counts.
If you are an irresponsible individual who can but won't make your house payments in a timely manner, lenders have nothing to offer but a ride to the courthouse steps. But if you have been a good paying customer, have a good reason why you fell behind, and look like you'll be able to get back on your feet, lenders can be plenty of help. The key word is forbearance.
Here's the thing: Lenders don't want your house, they want you. According to a report I read recently, the costs of foreclosure are enormous. On average, the total cost, including lost interest during the delinquency, foreclosure costs and disposition of the property, ran nearly $59,000, and the situation took about 18 months to resolve. Worse, these figures were five years old. It is probably more expensive now and takes even longer.
At the same time, keeping people in their homes has been found to be far more productive. Indeed, roughly 90% of the loans that are reworked by lenders are likely to "cure" within 18 months. And those borrowers who seek help from their lenders earlier in the process are far more likely to hang on to their places after
riding out their financial turbulence than those who seek help later.
What's more, research shows that the factors originally used by underwriters in trying to predict the likelihood would-be borrowers will default -- credit, collateral and capital -- are not nearly as useful when deciding whether to "work" with customers who are already on the books but are having a tough time meeting their obligations.
Lenders have several workout options up their sleeves:
· Partial reinstatement. Under this plan, the borrower would agree to begin making regular payments and make up what is owed in, say, 12 monthly installments over the next year.
· Short-term forbearance. Here, the lender will suspend your payments for, say, three months or reduce your payment for six months, and then you'd make up the difference in some kind of repayment plan as described above.
· Long-term forbearance. Payments might be suspended for anywhere from four to 12 months, with a corresponding repay plan to follow.
· Loan modification. This would be a permanent change in one or more of your loan's original terms. The rate might be cut, the payment period extended or both so that the payment once again becomes affordable.
So my advice is to get on the horn right now with your lender. Make sure you talk to the workout department, though, not the collections folks. Though many lenders are training their repo staff to spot people who need a break and hand them off to the right people, most are bill collectors, short and simple. If the person you speak with has no idea what you are talking about, ask to be transferred to the chairman's or the president's office. You can bet they'll know whom to transfer you to.
You don't need anybody to speak for you, either. So stay away from the growing group of charlatans who are preying on financially distressed homeowners by offering -- for a fee, of course -- to act as a go-between between you and your lender. They don't have any more of an inside track than you do.
If you honestly feel you need to have someone holding your hand, contact a local credit or homeownership counseling agency. These nonprofits don't charge a thing. In fact, in some cases, lenders are paying them to go out into their communities to persuade troubled borrowers to contact their lenders.
The Department of Housing and Urban Development has a list of government-sanctioned counselors on its Web site, www.hud.gov. Also try the National Foundation of Credit Counselors, www.nfcc.org, or the Homeownership Preservation Foundation, www.995hope.org (888-995-HOPE).
Even if you and your lender can't see any way to save your home, there are still options available that are less painful than foreclosure -- for both parties. You can list your home with a Realtor. There are plenty of Realtors that are skilled in a short sale, or a quick sale. If selling is too burdensome, you can simply hand over the keys to the lender by voluntarily transferring the title back to it in one of several different ways.
In a deed-in-lieu of foreclosure situation, you would forego continued ownership in exchange for cancellation of the remaining debt. In a short sale, also known as a short payoff or pre-foreclosure sale, the lender would allow you to sell the place at less than what is owed, and you and the lender would agree to an unsecured repayment plan for the difference. Anything is better than doing nothing and ruining your credit. Unless you have a lot of money, credit is the only thing that enables you to chase the American Dream. I learned that a long time ago from my father.
Rob AlleyREALTOR® - Roy Wheeler Realty Co.President - Virginia Tech Alumni Association - Charlottesville ChapterBoy Scouts of America - District Advancement Chairman - Monticello District434-220-7630 (office)http://www.robsellscharlottesville.com/
What To Do If You Can't Pay Your Mortgage
Almost 280,000 Americans lost their homes through foreclosure last year. But that's not the surprising part. This is: Half of them never even talked to their
lenders.
While the number of homeowners with past-due loans is still low by historical standards at 4.4%, it's expected to rise this year and next because almost 5 million American families will see their adjustable-rate mortgages reset to higher interest rates. Families that are already turning their pockets inside out to pay more than $3 a gallon for gas and higher health care costs may have to make painful choices in order to keep their homes.
Now is the time to dig out your mortgage documents and figure out when, by how much, and how often your payments can rise. If you see trouble ahead, now is the time to consider refinancing, or reaching out to a financial counselor who can help you evaluate your options. Most important, call your lender, right now, if you're about to miss a payment.
Your situation, and that of thousands of other folks like you, is serious. You are, indeed, in dire straits. But all hope is not lost, at least not yet.
You should contact your lenders right away. If you are like most folks, you aren't answering the lenders' mail or returning their phone calls. Most think they don't need to speak with their lenders about their situations, or think they can take care of their problems, if they recognize them as such, without involving the lender.
But a large percentage also believe their lenders can't or won't be any help, or are simply too embarrassed or scared to bring them up. But all these people are wrong -- on all counts.
If you are an irresponsible individual who can but won't make your house payments in a timely manner, lenders have nothing to offer but a ride to the courthouse steps. But if you have been a good paying customer, have a good reason why you fell behind, and look like you'll be able to get back on your feet, lenders can be plenty of help. The key word is forbearance.
Here's the thing: Lenders don't want your house, they want you. According to a report I read recently, the costs of foreclosure are enormous. On average, the total cost, including lost interest during the delinquency, foreclosure costs and disposition of the property, ran nearly $59,000, and the situation took about 18 months to resolve. Worse, these figures were five years old. It is probably more expensive now and takes even longer.
At the same time, keeping people in their homes has been found to be far more productive. Indeed, roughly 90% of the loans that are reworked by lenders are likely to "cure" within 18 months. And those borrowers who seek help from their lenders earlier in the process are far more likely to hang on to their places after
riding out their financial turbulence than those who seek help later.
What's more, research shows that the factors originally used by underwriters in trying to predict the likelihood would-be borrowers will default -- credit, collateral and capital -- are not nearly as useful when deciding whether to "work" with customers who are already on the books but are having a tough time meeting their obligations.
Lenders have several workout options up their sleeves:
· Partial reinstatement. Under this plan, the borrower would agree to begin making regular payments and make up what is owed in, say, 12 monthly installments over the next year.
· Short-term forbearance. Here, the lender will suspend your payments for, say, three months or reduce your payment for six months, and then you'd make up the difference in some kind of repayment plan as described above.
· Long-term forbearance. Payments might be suspended for anywhere from four to 12 months, with a corresponding repay plan to follow.
· Loan modification. This would be a permanent change in one or more of your loan's original terms. The rate might be cut, the payment period extended or both so that the payment once again becomes affordable.
So my advice is to get on the horn right now with your lender. Make sure you talk to the workout department, though, not the collections folks. Though many lenders are training their repo staff to spot people who need a break and hand them off to the right people, most are bill collectors, short and simple. If the person you speak with has no idea what you are talking about, ask to be transferred to the chairman's or the president's office. You can bet they'll know whom to transfer you to.
You don't need anybody to speak for you, either. So stay away from the growing group of charlatans who are preying on financially distressed homeowners by offering -- for a fee, of course -- to act as a go-between between you and your lender. They don't have any more of an inside track than you do.
If you honestly feel you need to have someone holding your hand, contact a local credit or homeownership counseling agency. These nonprofits don't charge a thing. In fact, in some cases, lenders are paying them to go out into their communities to persuade troubled borrowers to contact their lenders.
The Department of Housing and Urban Development has a list of government-sanctioned counselors on its Web site, www.hud.gov. Also try the National Foundation of Credit Counselors, www.nfcc.org, or the Homeownership Preservation Foundation, www.995hope.org (888-995-HOPE).
Even if you and your lender can't see any way to save your home, there are still options available that are less painful than foreclosure -- for both parties. You can list your home with a Realtor. There are plenty of Realtors that are skilled in a short sale, or a quick sale. If selling is too burdensome, you can simply hand over the keys to the lender by voluntarily transferring the title back to it in one of several different ways.
In a deed-in-lieu of foreclosure situation, you would forego continued ownership in exchange for cancellation of the remaining debt. In a short sale, also known as a short payoff or pre-foreclosure sale, the lender would allow you to sell the place at less than what is owed, and you and the lender would agree to an unsecured repayment plan for the difference. Anything is better than doing nothing and ruining your credit. Unless you have a lot of money, credit is the only thing that enables you to chase the American Dream. I learned that a long time ago from my father.
Rob AlleyREALTOR® - Roy Wheeler Realty Co.President - Virginia Tech Alumni Association - Charlottesville ChapterBoy Scouts of America - District Advancement Chairman - Monticello District434-220-7630 (office)http://www.robsellscharlottesville.com/
lenders.
While the number of homeowners with past-due loans is still low by historical standards at 4.4%, it's expected to rise this year and next because almost 5 million American families will see their adjustable-rate mortgages reset to higher interest rates. Families that are already turning their pockets inside out to pay more than $3 a gallon for gas and higher health care costs may have to make painful choices in order to keep their homes.
Now is the time to dig out your mortgage documents and figure out when, by how much, and how often your payments can rise. If you see trouble ahead, now is the time to consider refinancing, or reaching out to a financial counselor who can help you evaluate your options. Most important, call your lender, right now, if you're about to miss a payment.
Your situation, and that of thousands of other folks like you, is serious. You are, indeed, in dire straits. But all hope is not lost, at least not yet.
You should contact your lenders right away. If you are like most folks, you aren't answering the lenders' mail or returning their phone calls. Most think they don't need to speak with their lenders about their situations, or think they can take care of their problems, if they recognize them as such, without involving the lender.
But a large percentage also believe their lenders can't or won't be any help, or are simply too embarrassed or scared to bring them up. But all these people are wrong -- on all counts.
If you are an irresponsible individual who can but won't make your house payments in a timely manner, lenders have nothing to offer but a ride to the courthouse steps. But if you have been a good paying customer, have a good reason why you fell behind, and look like you'll be able to get back on your feet, lenders can be plenty of help. The key word is forbearance.
Here's the thing: Lenders don't want your house, they want you. According to a report I read recently, the costs of foreclosure are enormous. On average, the total cost, including lost interest during the delinquency, foreclosure costs and disposition of the property, ran nearly $59,000, and the situation took about 18 months to resolve. Worse, these figures were five years old. It is probably more expensive now and takes even longer.
At the same time, keeping people in their homes has been found to be far more productive. Indeed, roughly 90% of the loans that are reworked by lenders are likely to "cure" within 18 months. And those borrowers who seek help from their lenders earlier in the process are far more likely to hang on to their places after
riding out their financial turbulence than those who seek help later.
What's more, research shows that the factors originally used by underwriters in trying to predict the likelihood would-be borrowers will default -- credit, collateral and capital -- are not nearly as useful when deciding whether to "work" with customers who are already on the books but are having a tough time meeting their obligations.
Lenders have several workout options up their sleeves:
· Partial reinstatement. Under this plan, the borrower would agree to begin making regular payments and make up what is owed in, say, 12 monthly installments over the next year.
· Short-term forbearance. Here, the lender will suspend your payments for, say, three months or reduce your payment for six months, and then you'd make up the difference in some kind of repayment plan as described above.
· Long-term forbearance. Payments might be suspended for anywhere from four to 12 months, with a corresponding repay plan to follow.
· Loan modification. This would be a permanent change in one or more of your loan's original terms. The rate might be cut, the payment period extended or both so that the payment once again becomes affordable.
So my advice is to get on the horn right now with your lender. Make sure you talk to the workout department, though, not the collections folks. Though many lenders are training their repo staff to spot people who need a break and hand them off to the right people, most are bill collectors, short and simple. If the person you speak with has no idea what you are talking about, ask to be transferred to the chairman's or the president's office. You can bet they'll know whom to transfer you to.
You don't need anybody to speak for you, either. So stay away from the growing group of charlatans who are preying on financially distressed homeowners by offering -- for a fee, of course -- to act as a go-between between you and your lender. They don't have any more of an inside track than you do.
If you honestly feel you need to have someone holding your hand, contact a local credit or homeownership counseling agency. These nonprofits don't charge a thing. In fact, in some cases, lenders are paying them to go out into their communities to persuade troubled borrowers to contact their lenders.
The Department of Housing and Urban Development has a list of government-sanctioned counselors on its Web site, www.hud.gov. Also try the National Foundation of Credit Counselors, www.nfcc.org, or the Homeownership Preservation Foundation, www.995hope.org (888-995-HOPE).
Even if you and your lender can't see any way to save your home, there are still options available that are less painful than foreclosure -- for both parties. You can list your home with a Realtor. There are plenty of Realtors that are skilled in a short sale, or a quick sale. If selling is too burdensome, you can simply hand over the keys to the lender by voluntarily transferring the title back to it in one of several different ways.
In a deed-in-lieu of foreclosure situation, you would forego continued ownership in exchange for cancellation of the remaining debt. In a short sale, also known as a short payoff or pre-foreclosure sale, the lender would allow you to sell the place at less than what is owed, and you and the lender would agree to an unsecured repayment plan for the difference. Anything is better than doing nothing and ruining your credit. Unless you have a lot of money, credit is the only thing that enables you to chase the American Dream. I learned that a long time ago from my father.
Rob AlleyREALTOR® - Roy Wheeler Realty Co.President - Virginia Tech Alumni Association - Charlottesville ChapterBoy Scouts of America - District Advancement Chairman - Monticello District434-220-7630 (office)http://www.robsellscharlottesville.com/
Wednesday, December 12, 2007
The Big Bad Market
Ok, It’s Time to Come Out Now
If you don't have a TV, a radio, or a newspaper, you may have missed all of the negative press surrounding the mortgage and housing markets. The severity of the situation has created a mild panic that has paralyzed the consumer. If you are waiting for a "bottom" to the overall crisis, and for all the news to turn positive, don't hold your breath. Typically, where tragedy occurs, opportunity arises. Let me show you why it is "OK to come out now," and why you might be sorry if you wait too long.
Mortgage Meltdown?
The news might have you thinking that no one can get a loan these days. This is far from true. Hindsight has given us a clear picture of the kind of loans that shouldn't be offered again. The loans that have performed more consistently are still abundantly available, and you might be surprised that you can qualify.
Banks like to see strength in at least 2 of the 4 areas:
Credit Score
Sufficient verifiable income for the payment amount
Equity in the property or down payment
Liquid assets (money in the bank, stock market, IRA's, 401k's, etc...)
The items that will make your loan more difficult to obtain:
Non-Owner Occupied (investment property)
Stated or No Income (meaning you can't prove it with W2's or Tax Returns)
Bottom Line: If you can legitimately afford to make a regular house payment, there's a very high chance that this can be proven to a lender, who will in turn be happy to give you an excellent loan.
To make things better, interest rates are historically low. At the very lowest point in mortgage rate history, a 30 year fixed conforming loan danced around the 5.0% range. In the last several weeks, it has dropped to 5.625%. There is even further impetus to act on this information. Even if prices decline another 10% due to the market panic, there are sellers out there right now selling for 20% under current appraised value. So you might find a house for $160,000 today that will end up being worth $180,000 when the market bottoms out - a paradox, but true. This also means that your value is likely to be at it's highest as far as refinancing. Remember that EQUITY is one of the positive factors banks consider.
If you think you might be in your current home for more than a few years, have an adjustable rate mortgage, or have an interest rate that's over 6% - or - if you are a potential home-buyer, it is OK to come out now. Doing so could save you lots of money.
The Pendulum Effect
National average home prices are down significantly. This trend will continue, but consider three things. First, the hardest-hit markets drag down the average depreciation. Second, mid to high priced homes were more inflated than entry level housing. When those homes depreciate, they have farther to fall than a lower priced home. This also brings down the national home price average. Finally, panic can create a knee-jerk reaction among sellers, and market perception can create hesitancy among buyers.
What does this all mean? It's a GREAT time to shop for a moderately priced home. When the market has found a solid bottom and the demand returns, there will be a lot less ambiguity about what a home in your area is really worth. Sellers will be less willing to entertain offers, and selection will decrease.
Recession and Expansion
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend more money, eat out more often, and buy more new cars and houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession. During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets...and some markets in between. It is all based on supply and/or demand.
Supply and Demand - Inventory
During a seller’s market, homes sell quickly and sellers have a lot of pricing power. As a result, prices rise more rapidly than at other times. During a buyer’s market, homes may sit on the market for a while before selling; consequently, sellers become more flexible and may even drop their prices.
The market is determined by supply and demand.
In real estate, the relationship between supply and demand is calculated as "available inventory." At the current sales pace, how long would it take to sell the total number of houses available on the market? That is how the real estate industry measures inventory.
Inventory is measured in weeks and months. Longer inventory times are associated with buyers' markets. Shorter inventory periods are associated with sellers' markets. Some buyers and sellers hope to time their transactions to take advantage of market cycles.
Timing Your Purchase to the Market Cycle
The real estate market does not necessarily move in tandem with the stock market or the economy as a whole. When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall. The "affordability index" moves up and more people can afford houses.
As you can see, this cycle does not move "in sync" with the rest of the economy. One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. It is also strongly influenced by employment, salary, and consumer outlook for the future. If you could "time the market," that strategy would most benefit first-time buyers. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust.
Why You Should Not Wait to Purchase a Home
People who already own a home usually need to sell it in order to come up with the down payment for their next home. Even if they don't, they would have to carry the debt and obligations on two homes at the same time. This can create financial hardship, even when you rent out the previous home. There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.
If you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during that same depressed market. If you want to sell during a boom, then you also have to purchase during the same boom - It tends to equal out.
Finally, suppose you are a first-time buyer and wait until the beginning of a boom is near. If you guess wrong, are you going to wait...and wait...and wait...till the next depressed market? If so, you could miss out on loads of depreciation...and that is assuming you guessed right about your market timing? For instance, in 1996 when the home market was struggling, who would have predicted what the next seven years actually produced?
Rob Alley
REALTOR® - Roy Wheeler Realty Co.
President - Virginia Tech Alumni Association - Charlottesville Chapter
Boy Scouts of America - District Advancement Chairman - Monticello District
434-220-7630 (office)
http://www.robsellscharlottesville.com/
If you don't have a TV, a radio, or a newspaper, you may have missed all of the negative press surrounding the mortgage and housing markets. The severity of the situation has created a mild panic that has paralyzed the consumer. If you are waiting for a "bottom" to the overall crisis, and for all the news to turn positive, don't hold your breath. Typically, where tragedy occurs, opportunity arises. Let me show you why it is "OK to come out now," and why you might be sorry if you wait too long.
Mortgage Meltdown?
The news might have you thinking that no one can get a loan these days. This is far from true. Hindsight has given us a clear picture of the kind of loans that shouldn't be offered again. The loans that have performed more consistently are still abundantly available, and you might be surprised that you can qualify.
Banks like to see strength in at least 2 of the 4 areas:
Credit Score
Sufficient verifiable income for the payment amount
Equity in the property or down payment
Liquid assets (money in the bank, stock market, IRA's, 401k's, etc...)
The items that will make your loan more difficult to obtain:
Non-Owner Occupied (investment property)
Stated or No Income (meaning you can't prove it with W2's or Tax Returns)
Bottom Line: If you can legitimately afford to make a regular house payment, there's a very high chance that this can be proven to a lender, who will in turn be happy to give you an excellent loan.
To make things better, interest rates are historically low. At the very lowest point in mortgage rate history, a 30 year fixed conforming loan danced around the 5.0% range. In the last several weeks, it has dropped to 5.625%. There is even further impetus to act on this information. Even if prices decline another 10% due to the market panic, there are sellers out there right now selling for 20% under current appraised value. So you might find a house for $160,000 today that will end up being worth $180,000 when the market bottoms out - a paradox, but true. This also means that your value is likely to be at it's highest as far as refinancing. Remember that EQUITY is one of the positive factors banks consider.
If you think you might be in your current home for more than a few years, have an adjustable rate mortgage, or have an interest rate that's over 6% - or - if you are a potential home-buyer, it is OK to come out now. Doing so could save you lots of money.
The Pendulum Effect
National average home prices are down significantly. This trend will continue, but consider three things. First, the hardest-hit markets drag down the average depreciation. Second, mid to high priced homes were more inflated than entry level housing. When those homes depreciate, they have farther to fall than a lower priced home. This also brings down the national home price average. Finally, panic can create a knee-jerk reaction among sellers, and market perception can create hesitancy among buyers.
What does this all mean? It's a GREAT time to shop for a moderately priced home. When the market has found a solid bottom and the demand returns, there will be a lot less ambiguity about what a home in your area is really worth. Sellers will be less willing to entertain offers, and selection will decrease.
Recession and Expansion
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend more money, eat out more often, and buy more new cars and houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession. During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets...and some markets in between. It is all based on supply and/or demand.
Supply and Demand - Inventory
During a seller’s market, homes sell quickly and sellers have a lot of pricing power. As a result, prices rise more rapidly than at other times. During a buyer’s market, homes may sit on the market for a while before selling; consequently, sellers become more flexible and may even drop their prices.
The market is determined by supply and demand.
In real estate, the relationship between supply and demand is calculated as "available inventory." At the current sales pace, how long would it take to sell the total number of houses available on the market? That is how the real estate industry measures inventory.
Inventory is measured in weeks and months. Longer inventory times are associated with buyers' markets. Shorter inventory periods are associated with sellers' markets. Some buyers and sellers hope to time their transactions to take advantage of market cycles.
Timing Your Purchase to the Market Cycle
The real estate market does not necessarily move in tandem with the stock market or the economy as a whole. When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall. The "affordability index" moves up and more people can afford houses.
As you can see, this cycle does not move "in sync" with the rest of the economy. One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. It is also strongly influenced by employment, salary, and consumer outlook for the future. If you could "time the market," that strategy would most benefit first-time buyers. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust.
Why You Should Not Wait to Purchase a Home
People who already own a home usually need to sell it in order to come up with the down payment for their next home. Even if they don't, they would have to carry the debt and obligations on two homes at the same time. This can create financial hardship, even when you rent out the previous home. There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.
If you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during that same depressed market. If you want to sell during a boom, then you also have to purchase during the same boom - It tends to equal out.
Finally, suppose you are a first-time buyer and wait until the beginning of a boom is near. If you guess wrong, are you going to wait...and wait...and wait...till the next depressed market? If so, you could miss out on loads of depreciation...and that is assuming you guessed right about your market timing? For instance, in 1996 when the home market was struggling, who would have predicted what the next seven years actually produced?
Rob Alley
REALTOR® - Roy Wheeler Realty Co.
President - Virginia Tech Alumni Association - Charlottesville Chapter
Boy Scouts of America - District Advancement Chairman - Monticello District
434-220-7630 (office)
http://www.robsellscharlottesville.com/
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